Unemployment versus House Prices 1975-2008

The following graph shows the quarterly unemployment rate compared to real house prices. House prices have been adjusted for inflation and are given in 2009 Q1 prices.



6 thoughts on “Unemployment versus House Prices 1975-2008”

  1. Easy conclusion – one goes up, the other goes down.

    If you display this same chart with the house price data on a logarithmic scale, the trend would be even more obvious.

  2. I may be missing something but I don’t see evidence of a clear correlation up v down. The unemployment figures do not appear to fall significantly (compared to previous trends) from 1999-Q3 to 2004-Q4 whereas house prices rose steeply. In the period from 1982-Q1 for approx. one year, both unemployment rate and house prices are shown as rising together. Maybe this does look a bit different using logarithmic scale but, with the distortions in the values used, I’m not sure I could make much of this chart (unemployment figures are distorted by changing benefits/training schemes, changing incentives, changing social housing policies etc. Also, averaging house prices masks the real world).

    I agree it would be logical if a higher unemployment rate meant that fewer people could afford to buy a home – therefore if demand went down, so would prices. However, the size of this effect must depend upon who is losing their jobs. In some eras, the unemployed may not have been in the market in the first place. Also, it seems that the lack of borrowing facilities (part of so called affordability) is having more of an effect on house prices at the moment. I am certainly not an expert in economics but just don’t feel confident enough in the chart to conclude “if one goes up, the other goes down”.

  3. I think there is a bit of a leap of faith to see a correlation between the unemployment rate and house prices. Just because there appears to be some numerical linkage, does not imply that the two factors in some way influence each other. This would be stretching the data too far in trying to make it fit a theory. It’s a little unclear as to what hypothesis is being proposed and ‘demonstrated’ by the graph.

    I would love to find out more about what is being suggested here.


  4. Lies, big lies and statistics?

    Maybe the catch is in the inflation bit, but to my knowledge the houseprices peaked in 1981, 1991 and 2008.

    The first two peaks correlate well with a peak in the base interest rate of the Bank of England (1981 17%, 1991 15%). This time the situation is different (very low interest rates). Yes I think there is a relation between unemployment rate and the houseprices. Spain is a fine example. Hopefully we will not be going that route (20 % unemployed and 8% drop in houseprice PA), but maybe it is unavoidable.

  5. Agree there are academic points to be made here about which direction causality is but it seems blindingly obvious that rising unemployment should choke off demand and also increase supply of housing. Of couse there are opposing causality such as low house prices having a wealth effect which impacts on job creation but I find this argument rather a weaker one. There is also the fact that high interest rates seep into both statistics, with high interest rates chocking house prices and also reducing investment spend and exports so cutting job creation. My guess here is since unemployment usually lags the recession, you’ll see unemployment lag behind house price falls. Imagine here recession puts people of big caputal expenditures. This is what you see in the graph actually.

    One expects this graph shouldn’t predict much though since the economic conditions or rules we are experiencing feel somewhat peculiar or atleast more extreme. My guess is we get another GBP 135 bln QE in a few weeks time to soften the certain but probably mild-moderate recession in 2012. This will cause additional inflation and further real terms house price falls. The recession will tip unemployment higher still and drive interest rates lower unless a Euro induced banking crisis crops up.

    ie the graph will probably still show the same pattern albeit not necessarily in same way

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